Item 2. Man agement’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Three Months Ended March 31, 2004 and 2003

Our net income for the three months ended March 31, 2004 decreased to $15.2 million from $17.4 million for the three months ended March 31, 2003 and represented our 13 ^th consecutive quarterly profit. Diluted earnings per share was $0.14 for the first quarter of 2004 compared with $0.17 for the same period in 2003.

Our operating margin for the three months ended March 31, 2004 was 11.3% compared to 15.9% in 2003 and operating income was $32.7 million in 2004 compared to $34.5 million for the same period in 2003.  Our operations in 2004 were impacted by an extremely competitive revenue environment which resulted in revenues growing at a slower rate than capacity additions, poor weather conditions in the Northeast and increases in maintenance costs.

Operating Revenues .  Operating revenues increased 33.1%, or $71.9 million, primarily due to an increase in passenger revenues. Increased passengers resulting from a 35.3% increase in departures, or $86.9 million, partially offset by a 6.2% decrease in yield, or $17.2 million, drove the increase in passenger revenues of $69.7 million for the three months ended March 31, 2004. The lower yields experienced during 2004 and the 1.5 point reduction in load factor were primarily attributable to an extremely competitive environment which included unprecedented fare discounting and frequent flyer offers by several major airlines in many of the markets we serve.  These carriers also added back capacity that was taken out in 2003 at the onset of hostilities in Iraq, which significantly impacted our east-west markets. Other revenue increased 29.9%, or $2.2 million, primarily due to increased change fees of $1.3 million resulting from more passengers and increases in LiveTV third party revenues of $0.6 million.

Operating Expenses.   Operating expenses increased 40.3%, or $73.7 million, due to an average of 16.6 additional aircraft in service in 2004. Operating capacity increased 44.6% to 4.22 billion available seat miles and an increase in transcontinental flights over 2003 contributed to an 11.0% increase in average stage length. Operating expenses per available seat mile decreased 2.9% to 6.08 cents for the three months ended March 31, 2004.  In detail, operating costs per available seat mile were:

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Even with a 44% sequential increase in maintenance expense, cost per available seat mile remained flat compared to the fourth quarter of 2003, when it was 6.09 cents.

Salaries, wages and benefits increased 36.3%, or $20.7 million, due to an increase in average full-time equivalent employees of 36.7% in 2004 compared to 2003. Cost per available seat mile decreased 5.7% as a result of lower profit sharing expense.

Aircraft fuel expense increased 36.9%, or $13.2 million, due to 16.9 million more gallons of aircraft fuel consumed resulting in $16.5 million of additional fuel expense and, after the impact of fuel hedging, a 6.1% decrease in average fuel cost per gallon, or $3.3 million. Cost per available seat mile decreased 5.3% primarily due to the decrease in average fuel cost per gallon.

Landing fees and other rents increased 32.1%, or $5.2 million, due to a 35.3% increase in departures over 2003. Cost per available seat mile decreased 8.6% due to higher capacity and an increase in average stage length.

Aircraft rent increased 31.9%, or $4.2 million, due to having 7.1 more average aircraft under operating leases during the three months ended March 31, 2004 compared to 2003. Cost per available seat mile decreased 8.7% due to our more recent leases having longer lease terms and lower rates.

Sales and marketing expense increased 17.5%, or $2.0 million, due to higher credit card fees resulting from increased passenger revenues. On a cost per available seat mile basis, sales and marketing expense decreased 18.7% due to increases in capacity exceeding increases in advertising costs. We booked the majority of our reservations through a combination of our website (76.9% in 2004) and our own reservation agents (21.1% in 2004).

Depreciation and amortization increased 58.1%, or $6.0 million, due to having 9.5 more average owned aircraft during the three months ended March 31, 2004 compared to the same period in 2003. Cost per available seat mile increased 9.3% primarily due to increased infrastructure expenditures related to the growth of our business.

Maintenance materials and repairs increased 275%, or $9.2 million, due to 16.6 more average operating aircraft in 2004 compared to the same period in 2003, and a gradual aging of the fleet. The cost per available seat mile increased 159% due to the completion of 18 airframe checks in 2004 compared to six in 2003, as well as increased engine and component repairs.

Other operating expenses increased 37.2%, or $13.2 million. Higher variable costs associated with increased capacity and number of passengers served, were the primary reasons for the increase, partially offset by lower insurance rates. Cost per available seat mile decreased 5.1% as a result of higher capacity.

Other Income (Expense).   Interest expense increased 58.6%, or $3.6 million, due to the debt financing of 11 additional aircraft and interest on our 3½% convertible notes resulting in $4.1 million of additional interest expenses, slightly offset by lower interest rates. Capitalized interest increased 54.3%, or $0.6 million, primarily due to higher predelivery deposit balances partially offset by lower interest rates. Interest income increased $0.8 million primarily due to higher cash and investment balances in 2004.  Ineffectiveness losses associated with our derivative contracts are recorded in other income (expense) since they represent the extent to which our derivative contracts do not correlate with aircraft fuel and are not necessarily related to our operations.

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The following table sets forth our operating statistics for the three months ended March 31, 2004 and 2003:

(1)     Excludes results of operations and employees for LiveTV, LLC which are unrelated to our airline operations.

Liquidity and Capital Resources

At March 31, 2004, we had cash and cash equivalents of $555.0 million, compared to $570.7 million at December 31, 2003. Cash flows from operating activities were $53.5 million for the three months ended March 31, 2004 compared to $31.7 million for the three months ended March 31, 2003. The increase in operating cash flows was primarily due to the growth of our business. We rely primarily on operating cash flows to provide working capital. We presently have no lines of credit other than a short-term borrowing facility for certain aircraft predelivery deposits.

Investing activities.   During the three months ended March 31, 2004, capital expenditures related to our purchase of flight equipment included expenditures of $141.0 million for four Airbus aircraft, $33.0 million for flight equipment deposits and $4.0 million for spare part purchases. Capital expenditures for other property and equipment, including ground equipment purchases and facilities improvements, were $9.9 million.

During the three months ended March 31, 2003, capital expenditures related to our purchase of flight equipment included expenditures of $96.5 million for three Airbus aircraft, $30.5

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million for flight equipment deposits and $5.1 million for spare part purchases. Capital expenditures for other property and equipment were $7.8 million.

Financing activities.    Financing activities for the three months ended March 31, 2004 consisted of (1) the financing of two aircraft with $65.3 million in floating note equipment notes purchased with proceeds from our public offering of pass-through certificates, (2) the financing of two aircraft with $68.0 million of 12-year floating rate equipment notes issued to various European banks, (3) the repayment of three spare engine notes totaling $9.0 million and (4) scheduled maturities of debt of $12.2 million.

On March 24, 2004, we completed a public offering of $431 million of pass-through certificates Series 2004-1 to finance 13 new Airbus A320 aircraft, scheduled to be delivered through December 2004.  The pre-funded cash proceeds from the sale of the certificates are being held in escrow with a depositary.  As aircraft are delivered, the cash proceeds are utilized to purchase our secured equipment notes issued to finance these aircraft.

Financing activities for the three months ended March 31, 2003 consisted primarily of the sale and leaseback over 20 years of three aircraft for $113.7 million with a U.S. leasing institution and the repayment of debt of $13.7 million.

We currently have on file with the Securities and Exchange Commission an effective shelf registration statement for the issuance of up to $750 million aggregate amount of common stock, preferred stock, debt securities, and/or pass-through certificates.  Through March 31, 2004 as described above, we had issued $431 million of pass-through certificates under this shelf registration statement.

Working Capital.     Our working capital was $227.7 million as of March 31, 2004. We expect to continue generating positive working capital through our operations. However, we cannot predict whether current trends and conditions will continue or what the effect on our business might be from the extremely competitive environment we are operating in or from events that are beyond our control, such as increased fuel prices, airline bankruptcies or consolidations, U.S. military actions, or acts of terrorism.  We have secured financing for all of our remaining aircraft deliveries scheduled for 2004 and, assuming that we utilize the predelivery short-term borrowing facility available to us, we believe the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

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(1)  Includes actual interest and estimated interest for floating-rate debt based on March 31, 2004 rates.

(2)  Amounts represent noncancelable commitments for the purchase of goods and services.

There has been no material change in the terms of our debt instruments or financial covenants from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2003 Form 10-K.  There are no new covenants associated with our equipment notes issued as part of our public offering of pass-through certificates.  At March 31, 2004, we were in compliance with the covenants of all of our debt and lease agreements.

In January, 2004, we entered into a non-cancelable operating lease for one aircraft with a 12-year term.  We have $15.8 million of restricted cash pledged under standby letters of credit related to certain of our leases which expire at the end of the related lease terms.

We operated a fleet of 57 Airbus A320 aircraft, of which 32 were owned and 25 were leased under operating leases, as of March 31, 2004. We also took delivery of one owned aircraft in March that began scheduled service in April 2004.  The average age of our fleet was 22.3 months at March 31, 2004.

As of March 31, 2004, we had on order 95 Airbus A320 aircraft and 100 EMBRAER E190 aircraft with options to acquire 50 additional Airbus A320 aircraft and 100 additional EMBRAER E190 aircraft, which are scheduled for delivery through 2016 (on a relatively even basis during each year) as follows: 

(1) Assumes all options are exercised.

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Committed expenditures for our 195 firm aircraft and 32 spare engines include estimated amounts for contractual price escalations and predelivery deposits. Debt financing has been arranged for all of our remaining 2004 aircraft deliveries and lease financing has been arranged for the first 30 of our EMBRAER E190 aircraft deliveries. Although we believe that debt and/or lease financing should be available for our remaining aircraft deliveries, we cannot assure you that we will be able to secure financing on terms attractive to us, if at all, which may require us to modify our aircraft acquisition plans. Other anticipated capital expenditures for spare parts, ground purchases and facility improvements for the remainder of 2004 are projected to be approximately $130 million in the aggregate.

In March 2004, the Port Authority of New York and New Jersey and the airlines agreed in principle on an agreement for the use of runways, taxiways and other facilities at JFK and LaGuardia Airports.  While the agreement is not final, the new agreement is expected to have a 20-year term, with a retroactive effective date of January 1, 2004. Financial terms of the new agreement are not materially different from those of the current operating agreement. Until the terms of the new agreement are finalized, a standstill agreement was entered into by the Port Authority and the airlines to extend the original agreement to May 31, 2004.

Off-Balance Sheet Arrangements

We have evaluated our interests in variable interest entities as defined by FASB Interpretation No. 46, Consolidation of Variable Interest Entities , and have determined that we hold a significant variable interest in, but are not the primary beneficiary of, certain pass-through trusts which are the purchasers of equipment notes issued by us and to be held by such pass-through trusts.  The proceeds from the sale of the certificates are being held in escrow with a depositary. As aircraft are delivered, the proceeds are utilized to purchase our secured equipment notes issued to finance these aircraft.  The proceeds held in escrow are not assets of ours, nor are the certificates obligations of ours or guaranteed by us; therefore they are not included in our condensed consolidated financial statements.

As aircraft are delivered, proceeds from the issuance of the certificates will be utilized to purchase our secured equipment notes issued to finance these aircraft. The certificates contain liquidity facilities whereby a third party agrees to make payments sufficient to pay up to 18 months of interest on the applicable certificates if a payment default occurs. The liquidity providers for these certificates are Landesbank Hessen-Thuringen Girozentrale and Morgan Stanley Capital Services.

We utilize a policy provider to provide credit support on the Class G-1 and Class G-2 certificates. The policy provider has unconditionally guaranteed the payment of interest on the certificates when due and the payment of principal on the certificates no later than 18 months after the final expected regular distribution date. The policy provider is MBIA Insurance Corporation (a subsidiary of MBIA, Inc.).  Financial information for the parent company of the policy provider is available at the SEC’s website at http//www.sec.gov or at the SEC’s public reference room in Washington, D.C.

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We have also made certain guarantees and indemnities to other unrelated parties that are not reflected on our balance sheet, which, we believe will not have a significant impact on our results of operations or financial condition.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2003 Form 10-K.

Other Information

Outlook.   We expect our operating capacity for 2004 to increase by approximately 37 to 39 percent over 2003 and our average stage length is anticipated to be approximately 1,400 miles, which, together with the current competitive industry environment, should result in lower passenger revenues per available seat mile.  Fuel costs have risen sharply since early December 2003 and may increase further.  Assuming fuel prices of 92 cents per gallon, our cost per available seat mile is expected to be consistent with 2003 and our operating margin is expected to be between 13% and 15% for 2004.  Higher maintenance costs are expected to be partially offset by our fixed costs being spread over more projected available seat miles.

We continue to add service, as reflected by the new daily non-stop service between Boston, MA and Oakland, CA, between Washington, D.C. and Sacramento, CA, and between New York and Aguadilla, Puerto Rico, scheduled to begin in May 2004, and between New York and San Jose, CA, scheduled to begin in June 2004.  We also plan to initiate international service between New York and Santiago and Santo Domingo, Dominican Republic in June 2004, subject to receipt of government operating authority.  Additionally, we anticipate initiating service at New York’s LaGuardia Airport in September 2004.

Recent Awards .  In April 2004, JetBlue was rated as the top airline in domestic quality for 2003 among the 14 largest U.S. airlines in an annual study conducted by the University of Nebraska at Omaha and Wichita State University.  The study, based on Department of Transportation data, assessed on-time performance, denied boardings, mishandled baggage and customer complaints for all carriers with more than 1% of domestic passenger volume.

Forward-Looking Information.   This report contains forward-looking statements relating to future events and our future performance including, without limitation, statements regarding financial forecasts or projections, our expectations, beliefs, intentions or future strategies that are signified by the words “expects”, “anticipates”, “intends”, “believes” or similar language. Our actual results and the timing of certain events could differ materially from those expressed in the forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of this report. It is routine for our internal projections and expectations to change as the year or each quarter in the year progress, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of each quarter or the year. Although these expectations may change, we may not inform you if they do. Our policy is generally to provide our expectations only once per quarter, and not to update that information until the next quarter.

Forward-looking statements involve risks, uncertainties and assumptions and are based on information currently available to us. Actual results may differ materially from those expressed in the forward looking statements due to many factors, including without limitation,

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our extremely competitive industry, our ability to implement our growth strategy including the integration of the EMBRAER E190 aircraft into our operations, our significant fixed obligations and our reliance on high daily aircraft utilization, increases in maintenance costs, fuel prices and interest rates, our dependence on the New York market, seasonal fluctuations in our operating results, our reliance on sole suppliers, government regulation, the loss of key personnel and potential problems with our workforce, the potential liability associated with the handling of our customer data and future acts of terrorism or the threat of such acts or escalation of U.S. military involvement overseas.

Additional information concerning these and other factors is contained in our Securities and Exchange Commission filings, including but not limited to, our 2003 Form 10-K.